Oil prices recovered on Tuesday, erasing overnight losses, as investors moved into risk assets and away from the safe-haven U.S. dollar which tumbled to multi-year lows.
U.S. West Texas Intermediate (WTI) crude futures rose 52 cents, or 1.22%, to $43.32 a barrel.
Brent crude futures climbed 49 cents, or 1.1%, to $45.77 a barrel.
Both benchmark contracts fell around 1% on Monday on worries about oil oversupply, with global demand stuck below pre-COVID levels.
The dollar was last down 0.04% at 92.146 against a basket of currencies, after hitting its lowest since May 2018 in the wake of the U.S. Federal Reserve’s policy shift on inflation announced last week.
“It (the policy shift) really cements the fact that you’re looking at negative real rates for the U.S. which will not be great for the U.S. dollar. That’s good for commodities,” said Louis Crous, chief investment officer at BetaShares, an Australian exchange-traded funds provider.
The weakening U.S. dollar makes oil and other commodities priced in dollars more attractive to global buyers.
Overall, the market remains focused on the stalled recovery in fuel demand as countries continue to battle the coronavirus pandemic with rolling COVID-19 lockdowns, analysts said.
“This has created plenty of uncertainty about whether demand for transportation fuels will ever return to normal,” ANZ Research said in a note.
Ahead of the release of U.S. stockpile data from the American Petroleum Institute industry group, a Reuters poll found analysts expect U.S. crude stocks fell by about 2 million barrels in the week to Aug. 28.
Gasoline inventories are seen falling by 3.6 million barrels, while distillate inventories, which include diesel and heating oil, are expected to drop by 1.5 million barrels, six analysts polled by Reuters estimated.